Imgur Raises $40M, But Let's not Forget Its Bootstrapped Past

Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, theSan Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.

The scrappy image-sharing company that employs a dozen people announced Thursday it raised $40 million in a Series A round led by Andreessen Horowitz. Reddit, the site with on which Imgur announced its 2009 launch, and with which it has the closest ties, is also contributing funding. In a release this week, the company said it will use the funding for hiring, continuing product development, and to reach a global audience.

If Alan Schaaf, the company's 26-year-old founder, will miss the lean days of bootstrapping his business, he only joked about it this week: "The only sad part is that we won't be eligible for any more Best Bootstrapped Startup Crunchies."

When I spoke with Schaaf, along with his co-founder Matt Strader, in December, he said not raising VC funding was his proudest achievement as a founder. "I'm probably most proud of the fact that we are bootstrapped, and that we are able to do not just the typical Silicon Valley startup thing," Schaaf said. "We are basically throwing away all the typical conventions of other startups."

Goodbye to all that. Here's the December profile and Q&A with Schaaf and Strader.

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Alan Schaaf was a junior at Ohio University in Athens, Ohio, when he grew frustrated with a shortcoming of one of his favorite websites, Reddit.

Posting an image online was a game of chance back in 2008. Certain image-hosting services would yank images that took up significant bandwidth and replace them with marketing materials. Remember all those broken images and "upgrade to pro" links? It didn't make any sense to Schaaf.

"I wanted to get rid of that whole business model, and say, 'if this image is actually so good, and is going viral, let's not take down. Let's spotlight it and put it in a place where more people can see it," he says. "And if it's actually that good we can put advertising around it."

He created Imgur, and posted a link to Reddit with the title: "My Gift to Reddit: I created an image hosting service that doesn't suck. What do you think?"

Reddit liked it. And so did the rest of the Internet. Imgur-hosted images started to dominate the meme-y posts on Digg and Facebook. At the patient hands of Schaaf and Mike Strader, the company's COO, over the past four years, Imgur has grown organically without a cent of outside investment (yes, this startup generates actual revenue!). What was Schaaf's dorm-room-based side-project is today still a pretty lean operation: It's just a 10-person company based in San Francisco. What's remarkable is that it serves more than 1.5 million images a day, and whose website gets more than 400 million monthly visits. It's been recently rumored that Yahoo has been courting the company as an acquisition target for up to $500 million.

If the company is still not ringing a bell, if you've ever seen a Grumpy Cat image, or really anyimagewith a white textblock-lettercaption imposed on it, you can probably thank Imgur for being the home to that meme. Oh, and it's pronounced "image-er." I spoke with Schaaf, 26, and Strader, 38, about how they created the company, and how they've bucked some of the conventions of Silicon Valley along the way.The following transcript has been slightly edited and condensed for clarity.

Did you think of Imgur as a business from the start?Alan Schaaf: Not really. I didn’t necessarily think it was going to be a startup. But I did very much admire Reddit as a company. Because they were very transparent with their users; always told everyone what was going on. They were very user focused, sort of like free speech mentality, and that's exactly what we are at Imgur.

I'd imagine the idea of hosting everyone's images forever could be a mental block. The amount of server space that could take is mind-boggling.

Schaaf: I didn't quite understand how costly it would be. I just figured we'd figure it out as we go. Looking back, that's kind of stupid. We are lucky I couldn't see five years ahead and know my bandwidth bill is going to be--how much!? I probably would never have done it in the first place.

You've always been able to afford it?

Schaaf: We've figured how great ways to monetize the content. We're working on sponsored images for really great branded content. We have a number of business models, actually. We sell merchandise in the Imgur store. We do a couple commercial hosting accounts with really high-quality partners such as Stack Exchange and Yahoo--so we actually host images for them. Then there's the sponsored images and native advertising. We have a number of ways we're actually generating revenue.

How much is the hosting bill every month?

Schaaf: I like to tell people it's like buying a really nice car every month.

When did you start thinking of Imgur as a business?

Schaaf: I think it was really clear that it was a business when the company started generating enough money that I could quit my other part-time job. When I was a student, I was working at the technology call center, where students call in if they can't get their email to work or something. A minimum-wage kind of job. Then the time came when I could pay not only for the bandwidth bills and the hosting costs of Imgur, but I could also get an extra pizza every week. Next, I could afford an apartment. Then the moment actually came when I could support myself, and bring on Matt full-time, and I realized that this could be a real business that could make actual money.

How did you two meet?

Matt Strader: You know how you get all these emails from your university you never read? I just happened to read one, and it was a little feature about Imgur and it had a picture of Alan, and laid out all the cool things that were happening. I thought, "This sounds really awesome." We just got together at The Front Room, the main coffee shop at the university, and started talking about the business. I was able to provide outside consulting and advice for about a year before joining full-time. We talked about the business potential Imgur represented.

When did you move out to San Francisco?

Schaaf: July of 2011. When I was in high school and college, I'd always been into websites, and when you'd read about sites and the companies and people behind them, they were always in Silicon Valley. This one's in Mountain View, this one's in Palo Alto. They're all right here. I knew I wanted to move out here, whether it was to work at Google or some other company. It also makes sense to be out here, rather than Nowhere, Ohio, which isn't exactly known as a tech hub. It's so much easier to meet people out here, if we ever wanted to raise funding. And it's like 12 degrees in Ohio right now.

How did you learn to manage employees at such a young age?

Schaaf: I'm the type of manager who doesn't really like the word "manage." Nor do I really like the word "boss." I like to look at myself as more as a leader. If something hard needs to be done, I'll start doing it myself, and get help from some of the employees, and then eventually I'll offload it onto them. I'm also in the weeds all day long. I do a lot of the same stuff they do. Rather than telling someone an idea I have and hope they do it, I try to work with them on forming the idea, and then they own the idea, too--and they're way more enthusiastic in doing it. It's a lot more meaningful than just doing something because someone wants you to. That's my style.

Was bootstrapping a deliberate plan?

Schaaf: Yeah, it was a deliberate plan. Once we started making money, we tried to project out how much we'd have and how many people we could hire. We always knew that getting investment was an option, but we've also always been growing so fast that our revenue has always outpaced our server and employee costs.

What's in the near future for Imgur?

Schaaf: The development focus is in the gallery section of Imgur, which is the entertainment section. That's because right now, Imgur is two things: We are a service, and we are an entertainment destination. Right now we are building features that benefit both, but our main focus is on the entertainment piece, to be a household name for viral images. Very much how YouTube is a household name for viral videos. We want to be Patient Zero for the viral image that gets uploaded and spread online.

How much of a battle do you think it will be to make Imgur a primary destination?

Schaaf: The battle comes in getting people to branch out of thinking of us as an image host, and to think of us as a place they want to spend a couple minutes of every day to see the best content of the Internet. That's what we are: The best image content that's circulating right now on the Internet--whether people realize it or not. Someone printed an interesting quote last week calling Imgur "the electricity of the Internet." That means it's like a utility you use daily without thinking about it. That's where the problem comes in: People are using Imgur without thinking about it. They're using our bandwidth somehow, and they take it for granted in some sense.

Strader: Yeah, we've been working on that for some time--getting people back to the site. Because that's the part that we can monetize. But we never want to take things away from people; we just want to give them more.

What are you proudest of?

Schaaf: I'm probably most proud of the fact that we are bootstrapped, and that we are able to do not just the typical Silicon Valley startup thing. We are basically throwing away all the typical conventions of other startups. We didn't have to go down that path of having an idea, raising a bunch of funding, hire a ton of people, raise more rounds, and all of a sudden you are a 1,000 person company and you're not making any money. We have flipped that around. We are 10 people; we are making money. And we are this huge traffic source. We are a staple of the Internet, all because we've just done things our own way and have just followed our gut.

Strader: I'd also say that there's always a push and pull between monetization and supporting the community. I'd say we've been able to do those things together in good harmony. Maybe we're not 100 percent optimizing for monetization at every turn. But we've built a great user community and great audience, and we've been able to support our business along the way.

What's your thinking on acquisition vs. taking funding at this point? There have been a lot of rumors lately.

Schaaf: We actually have met with a lot of the top VCs. We've been to the offices of maybe a dozen of the top web properties and met with their engineers to just talk with them. Whatever opportunity presents itself, whether it's an acquisition or fundraising, that's what we're striving for. We just need to weigh our options of what's going to help us out more.

Would you want to just keep growing and IPO someday?

Schaaf: Absolutely. We could raise a little bit of angel money so we could hire, but we could keep doing what we are doing. That's absolutely a plan, too.

Do your parents understand what you do?

Schaaf: They do now. It took them so long to grasp. They still don't understand why I need employees--why I can't do it myself. My mom really likes cats, so she checks the site every now and then.